Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Sunday, July 15, 2007

TELEPHONE HARASSMENT

The July/August issue of the AARP BULLETIN warns about phone calls from private collection agencies representing the IRS.

According to the article “What an Outrage! The IRS Phone Runaround”, “at first you wouldn’t know the IRS is behind a call because the debt collectors are instructed to say only that they are inquiring about ‘a personal business matter’. Only after the individual verifies personal information is the reason for the call revealed.”

The article goes on to say, “Many of the people contacted refused to disclose personal information, and the companies often continued to call them – repeatedly.”

It was my understanding that before you received any contact from an outside agency you should receive in the mail IRS Letter 3998-C – “We Assigned Your Overdue Tax Account To A Private Collection Agency”. Apparently this is not the case.

First of all, do not under any circumstances give any personal information, such as your Social Security number, to anyone over the phone. If you receive a phone call from a stranger asking for such information, whether or not they identify the reason for asking, tell them you will not provide such information over the phone and ask them to put the request in writing.

If you receive an IRS Letter 3998-C stating that your account has been referred to an outside agency, write to the IRS and tell them that you refuse to deal with a private collection agency and will only deal directly with the IRS because of your privacy concerns.

If you receive a letter from a collection agency stating that your account has been “outsourced” you should do what Gina Gwozdz of GINA’S TAX ARTICLES suggested back in October of 2006, and which I repeated in a posting to THE WANDERING TAX PRO when it was with tripod.com. Write to the agency and tell them that you are "not permitting them to proceed with your case and you would like them to return any and all information relating to you and your tax situation to the IRS. Send a copy of this letter to the IRS as well."

It has been proven that it is cheaper for the IRS to collect its own debts than it is to pay an outside agency.

Many members of Congress are against the use of outside collection agencies by the IRS. The AARP BULLETIN reports that at a recent Ways and Means Committee hearing Representative John Lewis, a Democrat from Georgia, said the calls described above amount to “harassment, confusion and violations of taxpayer protections”.

According to the CCH Tax News, “The Senate Appropriations Committee on July 12 approved an IRS budget of $11.1 billion for fiscal year (FY) 2008. The bill retains a controversial provision to limit funding for the IRS's private collection of tax debts, effectively ending the program if adopted by Congress. The IRS would be allowed to continue the initiative, but new funding would be capped at $1 million, an amount considered inadequate to maintain the program. The House version of the bill does not place any limits on private tax collectors.”

As I have said time and again, the IRS, and the various state tax agencies, should not be using private collection agencies, whose only goal is collecting money - whether or not it is really owed - and not fair and equitable tax administration.

While you should cooperate with the IRS, and state tax agencies, to resolve collection issues, you should refuse to deal with private collection agencies.

One of my payroll clients received a notice from the private collection agency that the New Jersey Division of Taxation has hired. According to the notice the client owed $45.00 in state income tax withheld for the 4th Quarter of 2005 (the client did not owe the money – it was paid and I had a cancelled check to prove it, which I sent directly to the NJ Division of Taxation). The notice included a penalty assessment of $1,113.50 on the $45.00. Not even a loan shark would charge that much! What idiots.

Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.